Equitisation now providing opportunities to private investors

05 Dec 2017

The first project, I was involved in as project director, to assist the Vietnamese Government to speed up equitisation or privatization as we know it in the west, was funded by the Asian Development Bank in the year 2000. At that time there were over 12,000 SOE’s and whist the number has much reduced very few of the enterprises, which have been sought after by foreign investors in particular, have come to market through IPO’s.

At last some of the so called “gems” are surfacing as the Government wrestles with the fiscal deficit and also shortages in some sectors, which require urgent and significant investment.

After several years of discussion, Vietnam is at last liberalizing the power sector as power shortages are forecast and massive additional investment is required to be able to meet future demand. The Government of Vietnam expects electricity consumption to grow between 10-12% per annum from now until 2020[1]fueled by increase in manufacturing and foreign investment into manufacturing, which has doubled over the last 4 years and accounts for 50% of demand. On the other hand installed capacity is expected to grow 4.6-10% per annum over the same period[2].

As a result of this and limited funding from the State Budget we are starting to see a liberalization of the power sector with IPO’s scheduled for major players including PV Power, EVN Generation Corporation number 3 and Binh Son Refining and Petrochemical company limited. The Government however still plans to hold a minimum of 51% in these entities.

The beer sector has long been of interest to foreign investors, as Vietnam represents the largest SE Asian beer market. Now, at last, plans have been announced for the sale of shares in Saigon Alcohol Beer and Beverages Corporation (“Sabeco”) and also Hanoi Alcohol Beer and Beverages Corporation (“Habeco” is also waiting in the wings. It appears in the case of Sabeco a majority of the shares will be on offer albeit at what is considered to be an inflated price.

Overall the equitisation of State Owned Enterprises, in non-strategic sectors, must be seen as positive and long overdue generating funds to assist the Government in managing the fiscal deficit and bringing private sector expertise and hopefully best international practice to these companies.